Stocks pop after Obama, GOP agree on taxes
NEW YORK (AP) – Stocks rose broadly after President Barack Obama and Republican leaders agreed to a package of tax cuts and an extension of unemployment benefits. Bond prices fell as traders moved money into riskier assets.
The Standard & Poor’s 500 index and the Nasdaq composite traded above their closing highs of the year. The yield on the 10-year Treasury note rose to 3.08 percent, its highest level since July 13. Rising bond yields indicate that investors are becoming more bullish on the economy.
The extension of the Bush-era tax cuts, which were due to expire at the end of the year, removed a major source of uncertainty for financial markets. The deal announced late Monday also included a one-year break on payroll taxes which will put money directly in Americans’ pockets. The same is true for the extension of unemployment benefits, which economists see as an effective way to stimulate the economy by getting people spending again.
“The deal in Washington is a big deal,” said Kim Caughey Forrest, equity research analyst at Fort Pitt Capital Group. “Investors really do like certainty, and they really do like certainty around taxes.”
The Dow Jones industrial average climbed 65.05, or 0.6 percent, to 11,427.24 in morning trading. Only three of the 30 stocks that make up the average fell: 3M Co., JPMorgan Chase & Co. and Bank of America Corp.
The S&P 500 rose 7.18, or 0.6 percent, to 1,230.30. All 10 industry groups that make up the index rose, led by industrial companies. The Nasdaq rose 15.50, or 0.6 percent, to 2,610.42.
Treasury prices fell sharply, sending their yields higher. The yield on the 10-year Treasury note rose to 3.08 percent from 2.93 percent late Monday as its price fell $1.38 per $100 in face value. The yield on the 10-year note is a widely used benchmark for interest rates on loans including mortgages.
Citigroup Inc. rose 3.3 percent to $4.60 after the government said late Monday it reached a deal to sell its remaining stake in the bank for a $12 billion profit. Nicor Inc. jumped 4.7 percent to $48.97 after the natural gas distributor said it had agreed to be acquired by AGL Resources Inc. for about $2.38 billion in cash and stock.
Investors were also encouraged by news out of Europe. European stock markets rose after finance ministers from the 16 nations that use the euro did not rule out increasing their $1 trillion bailout fund. Ireland was also expected to pass a budget to reduce its deficit.
Britain’s FTSE 100 rose 0.9 percent, while Germany’s DAX rose 0.9 percent. France’s CAC-40 rose 1.8 percent.
Gold for February delivery rose 0.2 percent to $1,418.90 an ounce. Silver for March delivery rose 1.5 percent to $30.180 an ounce. Crude oil for January delivery fell 3 cents to $89.35 a barrel.